No stopping now

Stan Sloane has been president and chief executive officer at SRA International Inc. for only eight months. But in that short time, he has crafted an ambitious plan that calls for the government contractor to boost annual revenue from $1.6 billion to $5 billion in five years through a combination of organic growth and acquisitions.If the plan succeeds ? and he insists it will ? the Fairfax, Va., company could free itself from the midtier squeeze in which firms in the $500 million to $2 billion revenue range find themselves. They're too big for small-business set-aside awards and too small to compete in the elite $10 billion first-tier ranks.The growth plan, which the SRA board of directors recently approved, is not the final goal, however. Sloane said the $5 billion target is more of a midpoint. "I don't believe the drive for growth ever stops," the former Lockheed Martin Corp. executive said.It's a comment that could apply to all tier-two contractors in today's market."It's a tough position to be even at $1 billion or $1.5 billion when your [competitors] are companies that are much, much larger," said Jerry Grossman, managing director at investment bank Houlihan Lokey Howard and Zukin and a Washington Technology columnist.SRA's strategic plan mirrors the thinking of other government contractors of similar size, such as ManTech International Corp. and SI International Inc., among others, Grossman said.CACI International Inc., for example, is on a path to grow its revenue from $2 billion to $5 billion by fiscal 2012, said Paul Cofoni, the company's president and CEO. "To do that, we have to grow the business 20 percent each year through a combination of acquisitions and hiring," he said.Grossman said those companies are facing a future that requires rapid growth. "Why? Because, collectively, these pure-play public companies have about $15 billion in annual revenue," he said. "The five large aerospace defense prime contractors ? Lockheed Martin, Northrop Grumman, General Dynamics, Boeing and Raytheon ? have $50 billion in services revenue. That doesn't include their products."Sloane said SRA will meet its targets because the company's annual organic growth rate is between 10 percent and 15 percent, and it is growing about 15 percent annually through acquisitions. "That 30 percent compound growth will get you to $5 billion by fiscal 2012, and that's what we're going to do," he said. "So we can afford to be aggressive with acquisitions."Given those numbers, it's likely Sloane can hit his $5 billion goal, Grossman said. "The challenges are finding the kind of quality targets they want to buy," he added. "You can't get there with a lot of small deals."SRA will probably need one or two acquisitions in the $500 million to $1 billion range, he said.Sloane, who succeeded longtime SRA President and CEO Renny DiPentima in April, predicts 2008 will be a year of change in many ways. A presidential election will take place, continuing budget resolutions will restrict spending, and there is no reasonable expectation of an end to the wars in Iraq or Afghanistan."Even if it ended tomorrow," Sloane said, "you will still have a period of time where the country will have to invest in re-equipping forces and fixing equipment, reconstituting the military capability" ? much of which is deployed overseas."We have to take a timeout and think about what all that means and start thinking about five years down the road," he said, explaining his rationale for pushing through the strategic plan well before his first anniversary on the job.He also predicted that SRA will be a different company five years from now because it will have expanded its presence in the state and local government and overseas markets, and it will have added some information technology products to its services offerings."That will be a change for us," he said. "Today I would not describe us as a product company."Achieving the strategic plan's goals will require SRA to add about $300 million in revenue annually through acquisitions and restructure some overhead costs to help pay for them."I want to essentially triple the amount of investment we have in new business between now and the five-year period," Sloane said. "We can't do that tomorrow, but we'll do it gradually."In June, SRA acquired Constella Group LLC, a privately held global health consulting company in Durham, N.C. It was SRA's first acquisition under Sloane, and it will form the foundation of SRA's new health business.Although he declined to provide a detailed shopping list, Sloane insisted SRA has no interest in acquiring problem companies to fix them and quickly resell them. He said he is looking for premium properties that will make SRA a better company, though not necessarily a bigger one."My experience with mergers is if you get that [synergy] wrong or if you have incompatible cultures, you're almost guaranteed to have a bad merger, and you can pretty quickly destroy value if you don't do those things right," he said.Any prospective purchase must also complement SRA's capabilities. Ultimately, the company must be greater than the sum of its parts, Sloane said, especially when aggressive foreign companies have artificially driven up the asking price of many U.S. firms as they seek to gain a foothold in the U.S. defense and homeland security markets."We're seeing some contraction now on the financial side of things that may put some rationality back," he said. "But so far, nobody is trying to sell anything at bargain-basement prices."Nevertheless, Sloane said, that environment would not deter SRA from acquiring new properties, and some acquisitions could happen before the end of the year.The five-year plan also calls for investing in opportunities for employees to receive training. "I just can't add costs," he said. "I have to pay for them. So that implies that we're going to have a lot of change in the way we operate the business ? efficiency of space, utilization of space, [and] automation of financial and other systems in order to reduce labor expenses."Such an ambitious program might seem like an effort to wipe the slate clean, but Sloane said he has nothing but praise for his predecessor and called DiPentima's handoff picture-perfect. "Renny had planned for this," he said. "He worked out a transition period and stayed on the board" while Sloane got to know the company, its employees and customers."I wasn't really looking to move," he said. "I was very happy with what I was doing" as executive vice president of Lockheed Martin's Integrated Systems and Solutions division.He credits SRA Chairman Ernst Volgenau with influencing his decision to join SRA. "I have tremendous respect for him, and I think had that not been the case, I would have had a bit more reservation about making the move," Sloane said.Now the former Navy officer is in command, and it's full speed ahead.